Fundamentals

The success of companies such as General Electric and some of other blue chips is amazing. Since its inception in 1878, GE has managed to arguably become the most successful company in history. 1 share of GE back in 1892 would be worth 4,602 shares today. A major reason for the astounding success of GE is the story behind the numbers, sometimes referred to as the qualities of the company called qualitative analysis.

ManagementA strong management is the backbone of any successful company. You may have heard the old saying, "bet on the jockey not the horse". This is not to say that employees are not important as well, but it is management that ultimately makes the strategic decisions. One good indicator is to see how long the CEO has been serving for the company. In the case of GE their CEO has been around for years. Secondly, check to see how the company and stock price has done over the years that he or she has been leading the company. If the company has "restructured", then it probably means that you should take a closer look to see the reasons why.

Industry/CompetitionMarket share is another important factor to take a look at. For example, Coke and Pepsi heavily dominate the battle in the soft drink industry. Anyone trying to enter this market would face heavy competition from these firms. GE on the other hand is extremely diversified, owning everything from NBC to their traditional business of selling light bulbs.

Barriers to enter the market are extremely important. A classic example is the restaurant industry. Anybody can open up a restaurant. Compare this to the automobile or pharmaceuticals industries. Both have massive barriers to entry. This can come in the form of large capital expenditures, exclusive distribution channels, government regulation, patents, etc. The harder it is for competition to enter an industry the better the advantage to existing firms.

Brand NameAsk yourself "Does this company have a valuable brand name?" This is a very important competitive advantage that should be considered. Coke is one of the most popular brand name in the World, and the financial value of this is huge. Companies such as Proctor and Gamble rely on hundreds of popular brand names such as Tide, Pampers, and Head & Shoulders. Having a long-term portfolio of brands diversifies risk, since under-performance of one brand can be compensated by the performance of other brands. As such, the shareholder/stock market value is less dependent on a single brand.